The Bank of Zambia (BoZ) Monetary Policy Committee (MPC) has increased policy interest rates to 10.25 percent from 9.75 in an effort to counter inflationary pressure and support macroeconomic stability.
BoZ Governor Denny Kalyalya said there is need for urgent implementation of other corrective policy measures that set the fiscal deficits, debt crisis and debt service payments on a sustainable path.
Mr.kalyalya disclosed that annual inflation was expected to remain above the upper bound of 6 to 8 target range over the next eight quarters due to heightened upside risks.
He also said that inflation declined from 8.0 percent recorded in the fourth quarter of 2018 to an average of 7.7 percent in the first quarter of 2019 on account of improved supply of some food items and reduction in domestic fuel pump prices but slightly edged due to the depreciation of the Kwacha against the US dollar.
“If not addressed, inflation is expected to remain above the target range over the reference period…Lower maize output, continued elevated fiscal deficits, high debt service payments and decline in gross international reserves areas are among key upside risks to inflation,’’ he said.
Mr.Kalyalya observed that should the upside risks of inflation persist, the committee would further adjust the policy rate upward.
Commenting on the Kwacha’s depreciation against the US dollar, the governor said the depreciation was on account of elevated demand related to petroleum imports, reduced supply of foreign exchange and adverse market attitudes.
He further reviewed that the demand for government securities remained weak in the first quarter of 2019 falling to 29 percent from the previous 33 percent.
Mr. Kalyalya also noted that the Gross Domestic Product (GDP) growth is expected to slow down reflecting lower agricultural production and mining outputs as well as constrained electricity generation.